BLOG: US-to-China HDPE: The “known, unknowns” and the “known, knowns”

SINGAPORE (ICIS)–Click here to see the latest blog post on Asian Chemical Connections by John Richardson.

Donald Rumsfeld’s famous comments about “known, unknowns” and “known, knowns” remains useful (let’s leave aside “unknown, unknowns” for the time being).

Let’s apply his comments to high-density polyethylene (HDPE) as we try to answer the question of whether the US can retain the strong position it has enjoyed in China over the last three years.

See today’s post in full here with the summary as follows:

• A “known, unknown” is that nobody has a clue about the outcome of US trade policies towards. So, prepare for anything from improved China/US trading relationships to a full-blown trade war and anything in between these two extremes.
• A “known, known” is that the US has over the last three years emerged as a winner in HDPE exports to China during what is at least a medium- term (this a second “known, known”, I believe) Chinese economic slowdown and the country’s rising HDPE self-sufficiency. This has been at the expense of Saudi Arabia, Iran and South Korea etc., as we can see from today’s main chart. Saudi Arabia’s sales turnover in China was down by an estimated $2.3bn in 2022-2024 versus 2019-2021. Iran was 1.8bn lower and South Korea 0.52bn lower. In contrast, the US was nearly a billion dollars in the black.
• We thus need a range of scenarios on our first “known, unknown” about how different US trade policy outcomes could reshape global HDPE trade flows and sales turnover in China,
• But another “known, unknown” is the extent to which lower Chinese import tariffs on US HDPE from February 2020 onwards has led to the US being a winner versus its feedstock advantages. Since the Evergrande Turning Point, its feedstock advantages over the Middle East as a whole have been slight (although Saudi ethane costs have gone up substantially in recent years and are reported to have gone up again this month), but huge over Northeast Asia and Southeast Asia. Further, we don’t know the degree to which the mix of grades exported to China has also played a role. China is increasingly able to meet its commodity-grade needs but still requires substantial imports of higher-value grades as its economy matures. And what about production issues, i.e. outages and turnarounds?
• This leads us to our final “known, known”: That scenario modelling has become much more complex. Different assumptions on all the above variants – and probably more that I haven’t even thought of – need to be factored in as we assess future HDPE trade flows to China and earnings in China by the big exporters. This is where artificial intelligence can increasingly help us.

Why make life hard for yourself by not making maximum use of AI? Don’t be a Luddite because the answers are not perfect now. AI will get better the more we work with it.

Editor’s note: This blog post is an opinion piece. The views expressed are those of the author, and do not necessarily represent those of ICIS.